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Archive for June, 2012

FA Notes

June 29th, 2012 No comments

Market +2.49%. Oil +9.4%, biggest rally in 3 years.

1. EU Summit announces ESM seniority change
2. Germany Merkel backs down second time in a few weeks (last time was Spanish bank bailout weekend of June 11th)
3. Deceleration of Core PCE price index from 2.0% y/y to 1.8% y/y gives Fed doves more ammunition for QE3
4. Lack of selling into quarter end to protect performance

chicago

mich

Macro

-Chicago PMI 52.9 vs. 53.1 est., prior 52.7

-Consumer sentiment 73.2 vs. 74.1 est., prior 74.1

-PCE price index –0.2% vs. –0.1% est., prior 0.0%. Core PCE 0.1% vs. 0.2% est.

-PCE price index 1.5% y/y vs. prior 1.9%. Core PCE 1.8% y/y vs. prior 2.0%

Stocks

-The Verge reviews Google Nexus 7 tablet Link

-Smart Money: Inside the life of a stock flipper Link

-Google launches cloud offering called Google Compute Engine Link

-5 year anniversary of the Apple iPhone Link

-Vivendi plans to sell its $8.1 billion 61% stake in Activision Link

-Amazon plans a Q4 launch of an ebook store in Brazil Link

Categories: News

FA Notes

June 28th, 2012 No comments

Market –0.21%. Obama-care gets upheld by the Supreme Court.

Nike futures orders 7% vs. 14.2% estimate. Gross margins 42.8% (-150bps) vs. 44.3% estimate. China weakest geography +2% ex-FX vs. 15.4% estimate. Analyst asked why is China slowing question with a long list of possible drivers. Management replied "all of the above."

Macro

-Jobless claims 386K vs. 385K est., prior 392K from 387K

-Kansas City Fed manufacturing index 3 vs. 4 est., prior 9

Stocks

-Teri Buhl says J.P. Morgan’s trading loss could be as large as $9 billion Link Reuters says $4-6 billion loss Link

-Notebook maker, Pegatron, turns conservative on Q3-12 with –10% vs. last year’s 10-20% growth Link

-Hard-drive supplier, Hutchinson Technology, pre-announces negatively with 100M suspension assemblies shipped vs. 105-115M guidance Link

-Barclays fined for falsifying LIBOR submissions Link

-John Paulson weak hedge-fund returns Link Link2

-Amazon to ship new Kindle Fire in August Link

-ValueX Vail conference idea presentations Link

Categories: News

FA Observations Vol. 21

June 27th, 2012 No comments

Corn rallying on drought concerns

Market closed +0.90%. The market benefited from the May durable goods numbers not being as bad as the previous 2 months (April and March were both big 1.7% misses vs. the estimates), strong pending home sales data, and a report from the German Financial Times (Link) that the ECB’s chief economist hinted at a rate cut at next week’s meeting. Note tomorrow at 10AM the Supreme Court will release its decision on Obama-care and the EU summit is also the next 2 days.

Google started their developers conference today and launched two new hardware products 1) Google Nexus 7 tablet 2) Google Nexus Q media streamer.

First on the Google Nexus Q. It’s going to be total flop like the Logitech Google TV. No-one wants to over-pay on a hardware media streamer device at $299 when you can get better functionality today with a $49 Roku or $99 Apple TV box. It simply doesn’t make any sense, even if it is Made in the USA.

However I believe Google has hit a home-run with the $199 Google Nexus 7 tablet. Here is what you get in comparison to the $199 Kindle Fire:

1. you get a front-facing camera vs. no camera on the Fire

2. higher resolution display 1280X800

3. lighter weight

4. double the memory 1 gigabyte of RAM which helps browsing lag less and videos stream better

5. Quad-core Tegra 3 processor vs. Fire’s dual-core. 12 core graphics processor which runs rings around the Fire. The OS runs at 60 frames-per-second, which mean butter smooth scrolling, swipes, and less lag

6. A fully functional next-generation operating system, Android version 4.1 OS vs. Fire’s forked customized version 2.2, which means better tablet application support vs. scaled up smart-phone apps

7. off-line speech recognition, music recognition, Google Maps with compass gyroscope support (you can look into a restaurant with 360 degree pictures)

8. Console-quality Tegra 3 graphics supported games vs. casual smartphone games graphics quality

9. Google Currents (Flipboard clone) with automatic language translation feature

The list goes on and on. The hardware spec list and software integration is a gadget nerd’s dream at a $199 price-point. Until very recently you had to pay $499 for a IPS display 10” tablet with Android 4.0 OS and a Tegra 3 processor. Google is offering that type of horsepower at cost (no profit margin Google executives said) for only $199 in a 7” form-factor.

Google is also throwing in a $25 Google Play store credit for apps, movies, games, and books. Every Nexus 7 owner will also get a free movie (Transformers: Dark of the Moon), a free book (Bourne Dominion), and a bunch of free magazines (Popular Science etc.) to build your digital library.

$199 7-inch tablet with great high resolution IPS display with killer Tegra 3 12-core graphics power is also a death knell to hand-held gaming consoles like the Playstation Vita and Nintendo 3DS. It’s one thing to compete with Angry Birds and Fruit Ninja casual tablet game graphics, it’s another thing to compete with Tegra 3 supported console-quality graphics games at this low price-point.

If you’re in the market for a 7-inch tablet, get the Google Nexus 7. It’s leaps and beyond anything on the market right now especially at the price at least until the Apple iPad Mini comes in October.

What about the Kindle Fire 2 in July or August? Given how badly they flubbed Kindle Fire 1 hardware, I’m not optimistic. First I find it highly likely Amazon will continue using a forked older generation operating system, which means more lag (older APIs) and same less functional carousel dumbed down user interface.

It definitely won’t be running Android 4.1 OS which is only on the Nexus 7 right now. This means no Google software integration and features that come with Android 4.1.  Why pay the same price for a less functional, slower less featured old generation OS, less apps, and a more laggy tablet?

Read this (Link) on the new features and improvements of the Android 4.1 OS.

I do expect the old Kindle Fire 1’s price will be cut to $149, but even then the Nexus 7 is such a better buy with the $25 credit and better hardware/software.

And the recently released “no Tegra 3” Samsung Galaxy Tab 2 7-inch tablet at $249 also became obsolete today.

Go and see for yourself with these links: PressEventDemoVideo Verge TechReport StoreListingwithSpecs

Macro

-May durable goods 1.1% vs. 0.4% estimate, prior 0.2% revised to –0.2%. Ex-transportation 0.4% vs. 0.8% estimate, prior –0.6%

-Pending home sales 5.9% vs. 1.2% estimate, –5.5% prior

-Economists expect the ECB to cut rates next Thursday Link

Stocks

-Wall Street initiates ratings on Facebook Link

-Fortune: Amazon shifts on state taxes. Texas July 1. California September 15. Pennsylvania September Link

Categories: News

FA Observations Vol. 20

June 26th, 2012 No comments

Apple and Samsung are crushing RIM, Nokia, LG, Sony, and HTC

Look How Many Competitors Apple Has Destroyed In Just The Last Year Alone [Chart]
Source: Cult of Mac Link

The market closed +0.48%. After some early weakness due to Europe jitters following poor Italian retail sales numbers and a weaker than expected 3-6 months Spanish bond auction, the SP500 grinded higher the rest of the day on reports (Link) Germany may be willing to give up the ESM bailout fund’s seniority clause when it buys sovereign debt.

Infineon, a leading European semiconductor company, guided sales lower and said margins would be around 12% vs. previous guidance of mid-teens. The company cited “global economic uncertainties” causing softer sales.

The Siemens CFO told the WSJ the company, one of the largest German industrial manufacturers in the world, may have trouble meeting its earnings guidance for 2012 due to “significant deterioration in some economies.” “What we have seen is a significant downtrend in economic growth in the last two months.”

Macro

-Case Schiller 20 city –1.9% y/y vs. –2.4% est., –2.6% prior

-Consumer confidence 62 vs. 63.5 est., 64.4 prior

-Richmond Fed –3 vs. 5 est., 4 prior

-Merkel tells her coalition there will be no shared liability “as long as I live” Link

-Ray Dalio says don’t assume Germany and ECB will come through and make good on all of the European debt Link

Stocks

-SodaStream CEO talks down 2013 expansion hype and says 2014 will be the real growth year Link

-Report that Compal, a leading notebook manufacturer, will lower Q2 shipment growth from 15% to 7.9-10% Link

-WSJ: Small retailers competing with Amazon on Amazon’s marketplace platform Link

-Pacific Crest analyst lowers his 2012 Amazon b&w e-reader estimate, but says the Fire tablet may be at the high end of his estimates. Note his Kindle estimates are materially lower than other firms like Goldman, Merrill, and CS Link Link2

Categories: News

FA Observations Vol. 19

June 25th, 2012 No comments

Chart of Zimbabwean dollar vs. the U.S. dollar – A picture of hyper-inflationFile:ZWDvUSDchart.png

Housing is improving off its lows

The market closed –1.6% as European markets and financial stocks sold off hard as EU leaders and ECB’s Nowotny said “don’t expect much from this week’s EU summit.” Germany’s Merkel emphasized she is still against euro-bonds and any joint liability deposit insurance. In almost comic fashion, it came out that Greece’s new prime minister will not be able to travel for 2 months due to eye retina problems and Greece’s new finance minister resigned due to serious illness. Greece and Europe can’t catch a break. WSJ also reported Moody’s is set to downgrade Spanish banks in the immediate future.

On the positive side, new home sales and the Dallas Fed manufacturing survey both came in ahead of expectations. The first good economic news it seems in eons.

Once again the key will be this Thursday and Friday’s EU summit. If they don’t get anything of substance done, the market will not have much to chew on for months as the next two summits are on October 18-19 and December 13-14.

The Supreme Court is slated to announce their decision on Obama-care this Thursday, which will have huge implications for health-care stocks. Here are the basic scenarios according to ISI:

1) Obama-care is upheld. Good for hospitals, Medicaid HMOs, drug distributors. Bad for HMOs, pharma, and biotech.

2) Individual mandate is over-turned. Good for Medicaid HMOs. Bad for HMOs, hospitals, pharma, and biotech.

3) All of Obama-care is over-turned. Good for the entire market, HMOs, pharma, biotech, and devices. Bad for hospitals, Medicaid HMOs, and drug distributors.

Macro

-New home sales 369K vs. 350K est., 343K prior

-Dallas Fed manufacturing survey 5.8 vs. 0.0 est., –5.1 prior

Stocks

-Samsung expects to sell at least 10 million Galaxy S III smart-phones by July Link

-SSD flash memory hard-drive prices are in total free-fall Link

-HBO has put up the first full episode of Aaron Sorkin’s new series The Newsroom on YouTube for free Link

Categories: News

FA Observations Vol. 18

June 22nd, 2012 No comments

The market closed +0.72% as the Spanish 10 year bond yield plummeted to 6.38% (it was over 7% days ago) on confirmation of yesterday’s leak that the ECB had eased collateral rules. Spanish banks will now be able to put up auto loans/leasing/consumer finance asset-backed securities and mortgage-backed securities as collateral to borrow from the ECB. Germany, France, Italy, and Spain also agreed to a 130 billion euro growth package for next week’s EU summit.

The big event for this upcoming week is the EU summit on Thursday and Friday (June 28-29). The market probably wants more meat than the 130 billion euro growth package. Any movement towards common euro-bonds and/or the ESM/EFSF bailout funds getting access to ECB financing leverage would be positive for the markets. Anything else will probably be a disappointment.

Darden Restaurants missed same-store sales comp estimates with a –1.9% number vs. +1.1% estimate. Olive Garden and Long Horn were about in-line with street expectations with the entirety of the miss coming from poor Red Lobster sales. The company said sales deteriorated over the course of the quarter with May being the worst.

One must watch video is Michael Burry’s 2012 UCLA economics department commencement speech (Link). Burry is not optimistic about the U.S. over the next few years as the debt-to-GDP ratio rises above Greece levels. However the most shocking anecdote of the speech is when he talks about what happened after he wrote a New York Times editorial criticizing the government and the Fed. Within weeks all 6 of his funds were audited, Congress asked for every email he wrote since 2003, and the FBI showed up. He had to waste thousands of hours defending himself and $1 million in legal/audit fees.

Is this the kind of country we live in? Where the government goes after the smart people, who predicted the financial crisis, instead of asking them for advice? Very sad.

Macro

-Michael Burry 2012 UCLA Economics Commencement speech. Must watch Link

-Fed’s Bullard sees a “pretty high hurdle” for QE3. Link

-How the monthly jobs report is calculated Link

-Leaders of Germany, France, Italy, and Spain agree on a 130 billion euro growth package Link

-Germany’s central bank isn’t happy about ECB collateral rule ease for Spain’s banks Link

Stocks

-Pinterest users are 72% female, Google+ users are 64% male Link

-Flash memory prices fall 2-5% in 1st half of June Link

-May semicap book to bill falls to 1.05 vs. 1.10 in April Link

-ARM Holdings is getting traction in the GPU market especially in TVs 70%, Android tablets 50%, and Android phones 20% Link

-HTC pulls out of Brazil Link

-Anandtech’s comprehensive review of the MacBook Pro with Retina display Link

-Tesla delivers first Model S car Link

-Only in America. A rug dealer makes $50 million investing in Silicon Valley startups Link

Categories: News

FA Observations Vol. 17

June 21st, 2012 No comments

The market closed –2.23%. There were rumors in the morning that Moody’s would downgrade global banks after the close, which turned out to be true. The bulk of the selloff started after a heinous miss in the Philadelphia Fed number at 10am. Soon after Goldman Sachs added fuel to the fire with a “short the market” trading call, which further pressured the market.

The overnight economic data was bad as China and Europe manufacturing data continues to show weakness. U.S. jobless claims also missed at 8:30am.

With the Fed putting QE3 off the table till their next decision date in August and with companies continuing to miss earnings estimates and bringing down guidance due to global macro issues, it seems the only thing that can save this market over the next few weeks is big market intervention from the ECB (Examples: LTRO round 3 or unlimited levered ECB lending to EU bailout funds) or some kind of concession by Germany on future euro-bonds at the EU summit next week.  Otherwise put your hard hats. It is going to get rocky.

fillyfed6-12
Macro

-Philly Fed –16.6 vs. 0.5 est., –5.8 prior. New orders –18.8 vs. –1.2 prior

-Markit U.S. Manufacturing Sector Flash PMI June 52.9 vs. 53 est., 54 prior

-EU flash manufacturing PMI 44.8 vs. 44.9 est., 45.1 prior

-Germany flash manufacturing PMI 44.7 vs. 45.3 est., 45.2 prior

-France flash manufacturing PMI 45.3 vs. 44.6 est., 44.7 prior

-China HSBC Flash manufacturing PMI 48.1 vs. 48.4 prior

-Jobless claims 387K vs. 383K est., prior revised to 389K from 386K

-Goldman Sachs puts out a short the market trading call after the weak Philly Fed report Link

-ECB is considering lowering collateral standards for Spanish banks Link

-Moody’s downgrades 15 global banks Link

Stocks

-Nokia, Motorola, Samsung, LG, Sony, RIM, HTC, Huawei, and ZTE cut orders to handset suppliers by 5-30% Link

-Facebook may be forced to let users opt out of sponsored story ads due to a lawsuit Link

-Ryder, logistics company, cuts earnings guidance due to weak commercial rental demand Link

-Must watch video showing how Microsoft shamelessly ripping-off Apple even in press event product launch of the Surface tablet Link

Categories: News

FA Observations Vol. 16

June 20th, 2012 No comments

The market closed –0.17% after gyrating wildly after the Fed released the news of an Operation Twist extension for the rest of the year and a leak of a new EU crisis blue-print plan that may include short-term Euro-bond like funding.

It seems like every day we get more data-points from companies that show weakening growth and today was no different. After last night’s Adobe comments of lower guidance due to Europe, Procter & Gamble also lowered guidance due to global growth slow-down. 

Bed Bath & Beyond reported comp store sales of 3% y/y, down from the 6.8% y/y last quarter and missing the street estimate of 4% y/y. The company said there was gross margin pressure due to increased usage of coupons and lowered EPS guidance to 97c-$1.03 next quarter vs. $1.08 estimate.

Red Hat reported 16% y/y growth in billings (20% ex-FX), which missed the street estimate by 3%. This is down markedly from the previous quarter when billings grew 31% y/y. When asked on the conference call on whether billings growth would re-accelerate next quarter, the company side-stepped the question.

Listening to the Bernanke press conference, the key lines was when he said, "I don’t think they should be launched lightly [further stimulus]…there should be some conviction they are needed" and "looking primarily at the labor market" to decide on more action. I interpret that as meaning he wants to see some more nasty jobs numbers before embarking on a full-on QE3.

In the short-term with the Fed decision is out of mix till August, the key questions will be answered at the EU summit next week. Will Germany and Merkel relent on short-term Euro-bonds and/or direct sovereign debt buying from the EFSF/ESM bailout fund?

Macro

-Fed extends Operation Twist with $267 billion for the rest of 2012 Link

-EU president Rompuy working on a blue-print for the end of month EU summit that includes jointly issued short-term bills Link

Stocks

-SodaStream takes the fight to Coca-Cola and expects to land major grocery and drugstore chains next year Link

-Starbucks to open its first Tazo tea shop Link

-Bloomberg interviews Julian Robertson Link

-May hedge-fund performance numbers Link

Categories: News

FA Observations Vol. 15

June 19th, 2012 No comments

The market closed +0.98% on the day led by the weakest quality companies like Sears Holding, First Solar, THQ, and European banks. There were a lot of rumors in the morning including ECB buying Spanish bonds and Germany relenting on letting the bailout funds buy Spanish debt directly, which were later negated. Euro and the market also rallied on the news the EU is trying to ban references to credit ratings from EU financial legislation. G20 officials also said the EU plans a more forceful response to the crisis by the end of the month.

Barnes and Noble reported disappointing results. Nooks sales went from +38% y/y growth in Q3 to +1% in Q4. Digital content sales went from +85% y/y growth in Q3 to +65% in Q4. Nook hardware units went from +64% y/y in Q3 to negative in Q4. On the conference call the company said they maintained or grew e-book market-share from their discussions with publishers as the ebook market growth decelerated in the last 3 months.

Digitimes (Link) reported Google will launch the long-awaited $199 7-inch Amazon Kindle Fire killer at the end of June with an initial shipment of 3 million units. Surprisingly Google’s hardware partner ASUS will release even cheaper tablet model at $159-179. 

Pacific Crest said in a morning research note on Apple, according to their channel sources Apple will launch their 7.85-inch Amazon Kindle Fire killer tablet in October. Pacific Crest also said Apple has shifted component order volume “heavily toward the smaller [7.85-inch] iPad.”

The main event for the week is tomorrow’s Fed meeting decision. The Wall Street Journal’s Jon Hilsenrath had an article in today’s paper saying the Fed is worried their stimulus actions haven’t reached the Americans that need it most. Although I have no real edge on what Bernanke and friends will do, here is at least what they look at in making their decision. The Fed has two mandates of minimizing unemployment and inflation.

1) YTD non-farm jobs numbers: January +243K, February +227K, March +120K, April +115K, May +69K. Clearly not a good trend.

2) Weekly jobless claims has been ticking higher in recent weeks

12-06-14cpi

Source: @MarkitEconomics

3) CPI and core CPI (ex-food and energy). Head-line CPI is coming down with lower oil prices, however core CPI is still near its highs

[Chart]

4) Core personal consumption expenditures went from 2.0% y/y in April to 1.9% y/y in May, which is slightly under the 2% Fed inflation target

5) Michigan 5-year inflation outlook reported last week was +2.9% y/y vs. +2.7% prior. 1-year inflation outlook was +3.0% y/y vs. +3.0% y/y prior

So we have a lot of mixed signals. Your guess is as good as mine.

Macro

-EU seeks to get rid of all credit rating references in EU financial regulation Link

-EU plans a more forceful response at the end of this month Link

-FT on the various Fed scenarios tomorrow Link

Stocks

-Obama campaign manager gets advice from Steve Jobs Link

-FedEx guides down as the global economy grows slower than they predicted Link

-Amazon is 20% more expensive vs. Walmart Supercenter on weekly grocery items Link

-ZDnet says Microsoft Windows 8 is a design disaster Link

Categories: News

FA Observations Vol. 14

June 18th, 2012 No comments

12-18-06

Source: Finviz.com

The Greek elections came in pretty much in-line with the secret TV polls that were leaked last week with the pro-bailout party winning by 2-3%. Futures gapped up Sunday evening similar to the previous Spanish bailout Sunday, but then sold off in the early morning due to fears out of Spain on reports of a larger bank bailout may be needed and the Spanish 10 year bond yield hitting record 7%+ highs. The Spanish market closed –2.96% and the Italian market closed –2.85%.

The SP500 chopped around most of day and closed +0.14%. However there was huge dispersion among the underlying sectors, technology large-cap growth was very strong (Nasdaq 100 +0.83%) along with internet and transport stocks. On the flip-side, retail and bank sectors were relatively weak.

Party clubbing clothing retailer, Body Central, reported horrible earnings and guided down for the year. The stock (BODY) closed –49%. DSW and AK Steel both also reported numbers that did not meet expectations.

With Goldman Sachs and Nomura software analysts previewing a soft Oracle quarter, Larry Ellison decided to report 3 days early after the close with fantastic software numbers above the street estimates. Q4 license revenue growth was +7% y/y (+12% y/y ex-FX) vs. +3.6% y/y street estimate. The company guided Q1 license growth of +5-15% y/y ex-FX or 0-10% with FX vs. the +5.5% y/y street estimate. When asked about the impact of macro concerns on the conference call for the quarter, the company said “everything stayed really really strong all the way around the world.”

Microsoft announced and showed off their 2 new 10-inch tablets at an evening press event. They will launch an ARM-based model called Surface for Windows RT and a Intel CPU-based model called Surface for Windows Pro. The key differentiating hardware features include a built-in kick stand and a thin cover/keyboard accessory. The company is trying to come out with an in-between tablet/laptop product. Unfortunately it seems likely it will be a jack-of-all trades and master-of-none offering.

If you need to get real work done, people will want a real laptop/ultra-book or Macbook Air. If you want to consume media, nothing beats a thin & light “no perimeter vent” iPad with hundreds of thousands more apps in addition to the iTunes eco-system. HP, Research-in-Motion, Motorola, ASUS, and Samsung all have tried to launch 10-inch tablets and failed miserably. Microsoft will be next.

The biggest event this week will be the Fed meeting decision on Wednesday. Tomorrow we will get a read on how the economy is doing when FedEx reports in the morning.

Macro

-Greece pro-bailout party, New Democracy, wins the election with 29.7% vs. 27% for Syriza Link

-Spain 10 year bond yields went to record highs above 7% Link

-French President Hollande’s Socialist party wins parliamentary majority Link

-Egypt military takes power Link

-Report that Spanish banks need a bailout of 150B euros Link

-Canadian asset manager, Sprott Asset Management, not doing so well YTD Link

Stocks

-Microsoft announces their Surface tablet line Link

-J.C. Penney’s #2 executive, Michael Francis, leaves the company Link

-Facebook working on location-based mobile ads Link

-Reuters on private label pressure on Green Mountain’s business. Bain says private label has 10-30% market-share depending on the category Link

-Lone Pine’s bull thesis on Kohls Link

-Market Folly’s top finance people to follow on Twitter Link

-Sina launches premium paid membership levels for Weibo Link

-AT&T employee pleads guilty to providing Apple iPhone sales insider information Link

Categories: News